Mortgage Protection – why might you need it?

For most people, a mortgage will be by far the largest debt they will ever have. Debts are passed on should the holder die and form part of their estate. There are many situations where mortgages that are passed on cause serious hardship for bereaved families.

Any situation where a families ability to meet the debt are impaired by the death of a family member could have serious implications, for example the family may need to downsize to meet their obligations.

A common way to avoid these situations is through mortgage protection, this is essentially life assurance that decreases in value as the mortgage is paid down. This means that in the event of the holders death their family would be able to pay off whatever remained of the mortgage and retain the family home.

Who needs mortgage protection?

Broadly speaking, mortgage protection is of particular importance to families with an outstanding mortgage that could not be easily paid off.

A potential scenario could be:

Tom is married to Jane, they are both 42 years old and have 2 children, 10 and 14. They have an outstanding mortgage of £220,000. Tom is a technology consultant and Jane is a homemaker.

They would need to consider protection in the event of Tom’s death, but should also consider protection in the event of Janes death also. If Jane were to die, Tom may not be able to work on a full-time basis to care for their children which would impact his ability to keep up his mortgage repayments.

It is important to consider that mortgage protection might not be enough. If Tom were to die, there may be further debts that could not be repaid. Jane would also need an income to continue to raise her children, this could come in the form of investments/savings but if this were not adequate (as would probably be the case) there may be other solutions to consider. Every families situation is unique and the only was to know what protection is required to look at this on a holistic basis – taking everything into account.

Many lenders will require protection when taking out a new mortgage but a change to this mortgage, for example moving house, might mean that the sum assured does not equate to the new outstanding figure. This may require re-brokering – replacing the old policy with a new one.

For more information about the contents of this article or to discuss any other financial planning needs please contact us.

The plan will have no cash in value at any time and will cease at the end of the term. If premiums are not maintained, then cover will lapse.